July 03, 2023 | Supply Chain Strategy
In a world increasingly concerned with climate change, managing your supply chain’s carbon footprint has become a crucial business necessity.
Given that supply chain emissions typically account for two-thirds of an average company's carbon emissions, maintaining a firm grip on these emissions is paramount for any robust carbon reduction strategy.
The supply chain carbon footprint refers to the total sum of greenhouse gas (GHG) emissions resulting from the production, transport, use, and disposal of a product or service. It encompasses emissions from all activities across the supply chain, from the extraction and processing of raw materials to the manufacturing, packaging, and shipping of the end product.
The challenge lies in the fact that these emissions are not directly controlled by the company but are still a result of its operations. Known as Scope 3 emissions, they are notoriously difficult to measure but must be effectively managed to meet reduction targets.
As the world races to mitigate climate change, being in control of your company's supply chain emissions can provide numerous advantages:
A deep understanding of the supply chain emissions allows businesses to detect and address carbon hotspots, leading to smarter procurement decisions.
With the rise of climate regulations, managing supply chain emissions helps ensure compliance, thereby avoiding potential penalties.
Consumer awareness about the environmental impact of businesses is growing. Demonstrating a proactive approach to managing carbon emissions can enhance your company's reputation and protect it from accusations of greenwashing.
With the complex nature of managing supply chain emissions, early adoption of effective carbon management strategies can help businesses stay ahead of future regulatory requirements.
Transparency is the first step in managing the supply chain carbon footprint. Companies need to develop new methods and frameworks to track and reduce carbon emissions across the supply chain.
Collaboration with suppliers is key. Companies must involve their suppliers in their carbon reduction strategies, helping identify which suppliers contribute the most to their carbon footprint and whose climate action can significantly reduce indirect emissions.
Some industries have a larger carbon footprint than others. Over 50% of the world's carbon emissions come from eight supply chains: food, construction, fashion, consumer goods, electronics, automotive, professional services, and freight. Therefore, targeting these industries can have a profound impact on reducing the overall supply chain carbon footprint.
Technology can play a pivotal role in tracking and reducing supply chain emissions. Data analytics, AI, and machine learning can provide insights into carbon hotspots and help develop efficient strategies for carbon reduction.
Companies must be aware of the evolving regulatory landscape. In the U.S., the Security Exchange Commission (SEC) is finalizing climate-related disclosure rules, which would require companies to report their GHG emission data and plans to address climate-related risks. Similarly, in the U.K., companies are required to report on their climate-related risks under the Taskforce on Climate-related Financial Disclosures (TCFD) framework. Understanding these regulations is vital to ensure compliance.
Several organizations are leading the way in managing supply chain carbon emissions. These entities have developed GHG inventories, instituted annual GHG-accounting practices, and have succeeded in reducing their own Scope 1 and 2 GHG emissions.
Managing the supply chain carbon footprint is not just a matter of environmental responsibility; it is a business necessity. Companies must realize that effective management of their supply chain emissions is a prerequisite to future-proof their operations, anticipate climate regulations, and sustain their bottom line in the low-carbon economy. The road ahead is challenging, but with the right strategies, tools, and partners, businesses can make significant strides in reducing their supply chain carbon footprint and contribute to the global fight against climate change.
Learn how GEP can help you cut down on supply chain carbon emissions.